Running an eCommerce business can feel like a dream come true—sales rolling in, products flying off digital shelves, and growth on the horizon. But here’s the catch: no matter how much revenue comes in, if eCommerce cash flow mistakes isn’t managed carefully, that dream can quickly turn into a nightmare.

Cash flow can be tricky to navigate, and it’s often the silent force that makes or breaks a business. Impressive revenue numbers don’t always translate into a healthy bank balance without thoughtful cash flow management.

Even experienced entrepreneurs fall into common cash flow traps that can spiral out of control, leading to missed payments, stalled growth, or, worst of all, the threat of bankruptcy. Take Emily, for example—an old client of ours.

Emily, a passionate entrepreneur, launched an online store specializing in curated home decor. Her unique selection quickly gained traction, and orders started flooding in. Everything seemed to be on the up-and-up—until Emily faced a harsh reality: despite growing sales, her cash flow was drying up.

As her business grew, so did her expenses. Suppliers wanted upfront payments, shipping costs climbed unexpectedly, and a wave of product returns began eating into her profits. Sales were pouring in, but Emily was constantly chasing cash, barely keeping her balance in the black.

Her story highlights a common trap for many eCommerce owners. These cash flow issues, if ignored, can spiral out of control and push a promising business to the brink of bankruptcy. Let’s take a closer look at the three cash flow mistakes that cost Emily her business—and how avoiding them can keep your eCommerce venture not only afloat but thriving.

1. Cost of Goods Sold (COGS) Eating Into Profits

Emily’s shop was buzzing with sales and glowing reviews. Her curated decor pieces were a hit, and every time a sale rolled in, she felt a rush of excitement.

But with each sale, a harsh reality set in: almost half of her revenue was immediately spent on product costs—packaging, shipping, and supplier fees. It’s a situation many eCommerce owners face, where COGS (Cost of Goods Sold) quietly becomes the profit-eating force they underestimated.

For Emily, every new sale brought excitement—but also a sense of unease. While her curated home decor collection quickly gained traction and attracted loyal customers, she began to realize the reality of running a business: high COGS were eating into her profits.

In the eCommerce world, keeping COGS under control is essential, particularly for private-label businesses like Emily’s. Ideally, COGS should stay under 25% of sales to allow for marketing her product, maintaining healthy profit margins, and leaving room to grow.

Unfortunately for Emily, her COGS rate began to creep higher. As a result, her profit margins started shrinking, leaving her with less cash for reinvestment. This not only strained her ability to grow but also left her with little financial cushion for the inevitable slow seasons.

The higher her COGS, the harder it became to cover essential expenses, let alone set aside funds for marketing or scaling. The rising costs were diverting cash away from critical areas of her business, creating a fragile cash flow that quickly became unsustainable.

Emily’s experience is a classic example of how high COGS can trap a business in a cycle of revenue generation without actual growth. Recognizing the importance of managing COGS early on can make all the difference. For eCommerce entrepreneurs like Emily, keeping cash flowing to areas that matter most—such as reinvestment and marketing—is key to achieving long-term success.

How to Keep COGS Under Control

• Find Reliable Suppliers: This doesn’t mean choosing the cheapest supplier. Instead, it means finding a good balance between cost and quality. Reliable suppliers often offer consistent pricing, which helps prevent budget surprises.

• Reduce Shipping Costs: Shipping costs, particularly for international imports, can quickly erode profits. Inbound freight costs have fluctuated significantly in recent years, with a 40ft container ranging from $5k to $20k since COVID. To mitigate this, consider sourcing suppliers in the US or optimize packaging to reduce weight and minimize shipping fees.

• Analyze Returns and Damaged Goods: High returns can signal quality issues or unmet customer expectations. Fixing these problems early can reduce returns, saving cash that would otherwise go to waste.

Businesses with high COGS often believe they can compensate with higher volume sales. But in reality, these expenses continue to eat into profit, leaving little left for growth or emergencies. Lowering COGS, even by a small percentage, can make a significant difference to cash flow, freeing up funds for innovation and expansion.

Ideal COGS for sellers

For eCommerce sellers, managing Cost of Goods Sold (COGS) is critical to maintaining profitability and cash flow. As mentioned earlier, private-label sellers should aim to keep COGS below 25% of sales.

This lower threshold is essential because private-label businesses often need to invest heavily in marketing to build brand awareness and drive sales. Keeping COGS under control ensures there’s enough contribution margin to cover these additional expenses while maintaining profitability.

In contrast, wholesale and arbitrage sellers can operate with higher COGS, ideally 50% or less. The main reason for this is that these business models typically don’t require significant marketing expenditures.

Wholesale and arbitrage sellers often leverage established brands and existing customer demand, reducing the need for marketing spend. This allows them to maintain healthy profit margins even with higher COGS.

2. Taking Too Much Money Out of the Business

Emily’s business was thriving, and as her sales soared, she felt it was finally time to celebrate her hard work. Excited by the profit numbers, she began withdrawing more cash from her business, treating herself after all the late nights and relentless work.

But each withdrawal, while feeling like a reward, quietly drained her business’s cash reserves. Emily hadn’t realized how quickly these withdrawals could leave her operation cash-strapped, making it hard to keep up with inventory, marketing, and unexpected expenses.

In eCommerce, every dollar reinvested can make a huge difference. Yet, by taking larger withdrawals too soon, Emily left herself with limited funds to grow and adapt.

When a supplier delayed a crucial order, she was caught off guard, scrambling to find the cash to cover unexpected costs and meet customer demand. It was a tough realization: without a steady cash reserve, even small disruptions could throw her entire business off balance.

Emily’s experience is a classic lesson many business owners learn too late. Successful entrepreneurs often stick to a golden rule: leave at least 50% of profits in the business. For Emily, this rule would have allowed the business to cover expenses, handle supply chain disruptions, and fund future growth without scrambling.

Withdrawing cash too early may feel like a well-deserved win. However, it can set up a cycle where the business constantly fights to cover basic needs, stunting its potential just when it’s ready to flourish

Smart Ways to Handle Cash and Keep Growth On Track

• Set a Limit: Decide on a set percentage of profits to keep in the business. Many suggest a 50-50 split—half stays in, half can be withdrawn. This balance keeps cash flow steady while providing some personal rewards.  Many sellers choose to keep 100% in the business for their first 12 months to ensure stability.

• Plan for Seasonal Fluctuations: Some months will see higher sales than others. Instead of taking large withdrawals during high seasons, consider quarterly or biannual draws. This approach smooths out cash flow through the slower months.

• Track Cash vs. Profit: Cash flow doesn’t always match profit. A high profit doesn’t mean liquid cash on hand. Tracking actual cash flow provides clarity on what’s available for withdrawal without starving the business of needed resources.

• Use the Profit First Method: The Profit First method, flips the traditional sales-expenses-profit formula on its head. Instead of allowing expenses to dictate profits, you prioritize profit by allocating a percentage of your revenue to profit before covering other expenses. This way, you ensure that your business remains profitable from the start.

In many cases, leaving profits in the business leads to compounding growth. Cash reinvested in new products, marketing, or customer support goes a long way toward building brand loyalty and scaling the business. Owners who resist the urge to pull out large amounts early on give their business the foundation to grow sustainably.

3. Debt: The Interest Trap That Can Break Your Business

Emily felt she was on the verge of a big break with her business. As the holiday season approached, she saw a chance to maximize her profits by stocking up on best-selling items.

To fund this push, she decided to take on a loan, confident that the sales boost would cover the costs. Initially, it felt like a great move—she had extra capital to buy inventory and ramp up her holiday ad campaigns. But as the months went on, the reality of debt set in.

The loan wasn’t just about paying back the principal; it was the relentless interest that began to weigh heavily on her monthly expenses. Soon, Emily found that a substantial chunk of her revenue went straight to covering interest payments.

Even with steady sales, her profits started to shrink, and the cash she needed to reinvest in her business was barely there. Instead of helping her grow, the debt felt like a heavy anchor, keeping her business stuck.

Emily’s story highlights the double-edged sword of debt for eCommerce businesses. While loans can act as a fast-track to growth, high-interest payments can just as easily eat into profits, leaving little room for reinvestment or covering essential costs. As debt increases, so do monthly payments, and before long, profits can disappear entirely.

For Emily, taking on debt with high interest almost meant slowing down the business just when it was poised for growth. Her experience underscores the importance of cautious borrowing—especially in eCommerce, where debt can quickly become a barrier to the very success it was meant to support.

Strategies to Manage Debt and Control Interest

• Partner with Local Banks: Local banks often offer more flexible lending terms and are more likely to work with small businesses in their community. Establishing a relationship with a local bank can help secure better rates and terms when you need financing.

• Negotiate Lower Rates: Banks and lenders often prefer to keep reliable clients. With a good payment history, many lenders agree to lower interest rates, especially if it keeps the business from defaulting.

• Limit the Number of Loans: Multiple loans create multiple payment obligations, draining cash flow before it reaches the business. Keeping debt simple and manageable makes it easier to maintain healthy cash flow.

• Pay Down High-Interest Loans First: Not all debts are equal. High-interest loans cost the business more in the long run. Prioritizing these debts helps free up more cash faster, creating a cleaner financial slate. Additionally, be cautious with Merchant Cash Advance Companies, which are typically easy to obtain but come with extremely high rates. These should only be used as a last resort.

Debt, when handled carefully, can be a powerful tool. But high-interest debt, especially when left unchecked, eats up cash flow, limiting growth opportunities. Staying on top of debt management keeps the business nimble and prepared to handle both growth and unexpected challenges.

The eCommerce Cash Flow Mistakes That Make Growth Impossible

Scaling up sounds like the dream—more products, more sales, more visibility. But scaling without cash reserves brings its own cash flow nightmare. Imagine a business eager to expand, with plans for new product lines and a ramped-up ad campaign.

Orders pour in, but without enough cash on hand, scaling grinds to a halt as expenses soar. Every step in scaling—whether it’s a bigger inventory, broader marketing reach, or a larger team—demands extra cash up front.

Businesses that jump into growth without cash reserves often find themselves scrambling to cover costs. Scaling isn’t the same as simply growing; it’s a cash-intensive process that requires careful planning and resources.

Avoiding Cash Flow Pitfalls in Scaling

• Plan for Growth Phases: Scaling in stages—marketing first, then inventory, then new products—helps the business adapt and keeps cash flow balanced. Small, measured steps prevent the business from overextending its cash reserves.

• Create a Cash Reserve for Scaling: Set aside a reserve specifically for growth. This “scaling fund” covers extra expenses, so the business isn’t pulling from daily operating funds to expand.

• Use Cash Flow Forecasting Tools: Forecasting tools provide projections that help predict cash flow needs over the next few months. With a clear picture, the business can make growth decisions based on actual cash flow, not assumptions.

• Avoid Starting Underfunded: Starting out with insufficient capital is a major pitfall, especially for private label sellers. You need enough money to cover the initial product order, marketing, and the second reorder. Underfunding can lead to cash shortages that hinder growth, making it harder to scale successfully.

Scaling with a smart cash flow strategy ensures that growth builds a stronger foundation instead of depleting resources. It’s about creating a sustainable path, where each new level of growth has the support it needs.

Hidden Costs That Destroy eCommerce Cash Flow

Every eCommerce business expects certain costs: stock, shipping, and marketing. But plenty of hidden expenses hide below the surface, and these quickly add up. Fulfillment fees, warehousing charges, subscription software—all small at first, but each one chips away at profit margins over time.

Take a look at fulfillment fees. For a small shop, shipping a few packages per day, these fees seem manageable.

But as sales grow, these costs rise, and suddenly, a large portion of revenue vanishes into fulfillment. Hidden fees like these, if unchecked, turn what should be profit into expense.

Keeping Track of Every Hidden Cost

• Audit Monthly Expenses: Track expenses every month to spot patterns. Unexpected charges or fee increases can quickly become major drains on cash flow.

• Choose a Consolidated Subscription: Some software bundles inventory, email marketing, and customer management into a single package. Consolidating services this way often saves on subscription fees.

• Review Fulfillment Options: Different fulfillment centers charge based on product size, shipping zones, and packaging. Reviewing these options periodically helps ensure the business isn’t overpaying.

Hidden costs eat away at profit margins. But keeping an eye on expenses makes it easier to catch these costs before they pile up, preserving cash flow for the essentials.

Conclusion: Keep Cash Flow Healthy to Protect Your Business

For Emily, managing cash flow in her business was a journey of hard lessons learned. Unfortunately, despite her efforts, the weight of high COGS, excessive debt, and poor financial discipline ultimately led her to shut her doors. Emily’s story is a tough reminder that cash flow is the lifeblood of any business, and without a solid foundation, growth can be unsustainable.

In Emily’s case, she faced significant challenges—costs that ate into her profits, mounting debt that drained her resources, and a lack of reinvestment in the business. These missteps caused her business to spiral, and eventually, she had no choice but to close her doors. But the lessons learned from her story are invaluable for anyone looking to build a lasting, scalable business.

By staying disciplined, managing costs carefully, keeping debt under control, and prioritizing reinvestment into growth, businesses can avoid the fate that befell Emily. A healthy cash flow is not just about keeping the lights on—it’s about providing the flexibility to scale, adapt, and weather the challenges that inevitably arise.

So, while Emily’s business didn’t make it, the lessons learned from her experience should guide others in avoiding the same pitfalls. Prioritizing financial discipline, staying proactive with cash flow forecasting, and keeping debt manageable are crucial steps in building a business that can thrive for the long term.

Cash flow management isn’t glamorous, but it’s the key to unlocking sustainable, scalable success. For every eCommerce seller out there, use Emily’s story as a cautionary tale—keep your cash flow healthy, and your business will be better equipped to survive and grow.